Authors and Publishers Producing Books Related To Financial Changes

This summer, booksellers nationwide are displaying two new books related to the financial crisis of 2008 and the subsequent struggle to fix it with various regulations.

Former Federal Deposit Insurance Corporation (FDIC) Chairman William M. Isaac has authored Senseless Panic: How Washington Failed America (Wiley, June 2010). Isaac’s book serves as a memoir for much of his time at the FDIC, a discussion of decisions and changes made in the ‘80s and ‘90s under his watch. Isaac also discusses the current crisis, as well as various regulatory operations designed to correct it, specifically the mark-to-market accounting rules. Michael Hanson of Fisher Investments calls it “the best breakdown of FAS 157 [the new mark-to-market accounting update] published so far.”

Also on shelves is The Squam Lake Report: Fixing The Financial System (Princeton University Press, June 2010), an analysis by no fewer than 15 collaborators representing some of the most prominent minds in modern economics. Squam Lake is a textbook-like compilation of insights, analysis and recommendations from the group.

Mark to Market Leads to Greater Investment From Overseas

The Financial Times reports that tougher regulation and the push for mark-to-market accounting have caused domestic pension fund managers to shift away from equities and other riskier investments. Because populations are growing older, this migration was inevitable.  However it was anticipated to occur at a more moderate pace.

For example, in the UK, domestic pension funds and life assurers have reduced their share of the UK equity market to 25-30 percent. In the U.S. the pool of pension money is so vast, it takes very little diversification by Americans to have a big impact on the securities market.

The question is whether the shift to bonds is significant. Foreign investors are moving into securities as domestic investors leave. There is reason to be concerned when a country becomes heavily dependent on foreign equity flows: Overseas investors tend to be less committed owners than domestic institutions, and foreign investors are more likely to move in a herd. The Financial Times worries, “When they make for the exit, it can be destabilising [sic] for currencies as well as stock markets.”

Regulations have consequences. Let’s keep this in mind as we reconfigure the U.S. markets.